A Raise for Seniors Won’t Do Inflation Fight Any Favors
The US Social Security Administration is set to dole out perhaps its biggest cost-of-living adjustment in four decades next year. That’s a welcome development for the 70 million beneficiaries of the Social Security and Supplemental Security Income programs, but it also adds another subtle element of support to inflation and underscores the problem with high and volatile prices: Even the remedies set up to protect the most vulnerable can prolong the problem.
Let’s start with the bad news, or perhaps the good news, depending on whether you’re a cash-strapped senior or an inflation-fighting central banker. The latest downswing in the highly capricious energy market is likely to prevent the adjustment from reaching double digits, which seemed possible before gasoline prices began to plummet a couple months ago.
Under Social Security amendments dating to 1972, the SSA bases the automatic cost-of-living adjustment, or COLA, on the average third-quarter level of the Consumer Price Index for Urban Wage Earners and Clerical Workers as compared with the period a year earlier. So far, energy prices have prevented the overall index from rising almost at all in July (and probably August). But the third-quarter comparison with 2021 means that Social Security and SSI recipients should still get around an 8.9% COLA for next year, even assuming optimistically that month-on-month inflation will remain near zero through September.